Multiple equilibria in a firing game with impartial justice

Damien Besancenot (1) , Radu Vranceanu (2)

1 CEPN - Centre d'Economie de l'Université Paris Nord (ancienne affiliation)
2 ESSEC Business School

In many European countries, a majority of employees are hired under very protective labor contracts that
restrict the ability of the employer to dismiss them. In particular, employees can take to courts the firm's
layoff motive. Given the high costs specific to so-called economic motives and judges' limited ability to
process an ever growing flow of cases, in the last few years firms have been tempted to invoke faked personal
motives for firing "good" workers. This paper shows that the interaction between firms, employees and
the labor judicial system is consistent with multiple equilibria. Hence firing costs depend not only on
variables under the control of the government, but also on the nature of the equilibrium. Policies aiming
at increasing flexibility, interpreted as a reduction in firing costs, should consider the possibility of shifting
from a high to a low firing costs equilibrium.

Mots clés: Multiple equilibria.; Labor judges; Firing costs; Layoff motive; Multiple equilibria

Domaines: Economies et finances

Damien Besancenot, Radu Vranceanu. Multiple equilibria in a firing game with impartial justice. 2008. ⟨halshs-00203176⟩